2018 (5) TMI 125 - AT - Income Tax

Disallowance of 20% of Legal & Professional Fees paid - Held that - Neither the AO nor the CIT(A) has bring any cogent material on record while making adhoc disallowance @ 20% of expenditure. AO or the Ld. CIT(A) has not referred anywhere that no such services as referred in the corporate service agreement, is undertaken by the Anand Automotive Systems Ltd. No specific reason is identified for making adhoc disallowance only. No specific reason is mentioned as to why the disallowances made @ 20% only. Availing of such services from the group concern is not un-common. The lower authorities have not identified, if the payments made to related party is unreasonable. No comparable on reason cum industry is referred by lower authorities. Moreover, we have seen that Legal & Professional Fees is only 2.02% of the sales. No justification in partial disallowance of Legal and Professional Expenses, which we delete. - Decided in favour of assessee 20% of disallowance of advertisement and publicity expenses - Held that - The assessee has shown to have incurred expenses on advertisement, gift, coupons, simple expenses and export expenses. The Assessing Officer disallowed the 20% on the basis of his discretion. The Ld. CIT(A) confirmed the disallowance without specifying any reason. Moreover, the lower authorities have not identified, if the payments made to related party is unreasonable, we have seen that advertisement and publicity is only 4.30% of the sales. In absence of any specific reason for disallowance @ 20% of the expenses, the adhoc disallowance is not sustainable. - Decided in favour of assessee Disallowance of 20% of share of common marketing expenses - Held that - No period of validity of agreement is mentioned in this agreement as well. We have noted that the lower authority has not disputed the expenses incurred in relation to the agreement, only the validity of agreement was disputed. The lower authority has not brought any material on record that payment incurred on common marketing expenses is in-genuine or unreasonable. Considering the fact that neither any adverse material was brought on record nor any specific reason was mentioned before disallowing 20% only of the common marketing expenses. We have seen that share of common marketing expenses is only 1.61% of the sales. No justification in making adhoc disallowance @ 20% of the common marketing expenses - Decided in favour of assessee Disallowance of 20% of commission discount - Held that - Neither any adverse material was brought on record or any specific reason was mentioned before disallowing 20% of commission and discount payments. The lower authorities have no identified that the payment made on account of commission and discount is unreasonable. Thus when the lower authority has neither disputed the genuinenity nor given any specific reason for adhoc disallowance, the disallowance is not justifiable. Moreover, we have seen that commission and discount is only 2.07% of the sales.- Decided in favour of assessee

Summary

Issues Involved:
1. Disallowance of professional fees paid to a related party.
2. Disallowance of advertisement and publicity expenses.
3. Disallowance of share of common marketing expenses.
4. Disallowance of commission and discount.

Analysis:

Issue 1: Disallowance of Professional Fees
- The Assessing Officer disallowed 20% of professional fees paid to a related party without specific reasons.
- The assessee justified the expenses, citing increased sales and profit due to the services received.
- The corporate services agreement between the parties outlined various services provided.
- The Tribunal found no justification for the partial disallowance and deleted the disallowed amount.

Issue 2: Disallowance of Advertisement Expenses
- The Assessing Officer disallowed 20% of advertisement expenses without proper justification.
- The assessee provided documentary evidence of the expenses incurred.
- The Tribunal found the adhoc disallowance unsustainable due to lack of specific reasons and deleted the disallowed amount.

Issue 3: Disallowance of Common Marketing Expenses
- The Assessing Officer disallowed 20% of marketing expenses citing lack of justification and pending issues from a previous year.
- The assessee had agreements with another party for sharing marketing expenses.
- The Tribunal noted the lack of adverse material and specific reasons for the disallowance, deleting the amount disallowed.

Issue 4: Disallowance of Commission and Discount
- The Assessing Officer disallowed 20% of commission and discount payments without proper justification.
- The assessee provided ledger accounts and details of the payments made.
- The Tribunal found no reason for the adhoc disallowance and deleted the disallowed amount.

- In conclusion, the Tribunal allowed the appeal filed by the assessee, overturning the disallowances made by the lower authorities.

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